After having analyzed more than 80 thousand pieces of data on advertising and procurement Kreativ Magazine calculated, charted up and drew a picture of the development and day-to-day operation of the media empire of Lajos Simicska during the second Orban government (2010-2014). How much did they spend? How did tens of billions of taxpayers forints get channeled into private hands? Who are the people who operated the system? Who was greedier, Gyurcsány’s or Orbán’s people?

Foreword

This is an analysis of the shifts and drifts on the media and advertising market under the second Orbán government. We were looking for answers to the following questions: who turned out to be the main operators of the system after the change of governments, who won the majority of communication tenders for the highest amounts? What were the methods by which the state distributed, dispersed its advertising budget on the market? Who were the very characters that the post-2010 system favored on the advertisement and media market in Hungary?

Recently cracks in the walls of the Simicska Empire became visible, and many may ask whether it is still worth investigating the questions above. It is worth analyzing a system that fell apart some (months) ago after the start of the third Orbán government. It may be a valid question. However, we believe it is indeed worth describing the events that led to the highest level of vulnerability and distortion of the domestic media ever in order to be able to prevent something like this from happening again. It may also be worthwhile for the sake of accountability, so in the future the responsible individuals can be reminded of what they took part in between 2010 and 2014.

Their responsibility lies in developing and operating, highly effectively, a system where the characters and their tasks are centrally cooperated, commanded in an unprecedented manner. Indeed, it was done in plain sight, not only for stakeholders in the sector, as well as experts and those interested in these events, but even for the general public through articles covering the developments and on the main news sights. Nevertheless, details of the system’s operations were rarely caught making mistakes for which it could be held accountable: in the majority of the cases everything was done within the legal framework, sometimes only followed by the silent, passive gaze of other stakeholders and competitors.

How could this happen so uninterruptedly and smoothly? What stopped media agencies from bidding on public procurement projects in an attempt to compete against the alleged favored agencies of the government? Why did the full media market of Hungary assist in the public sector spending taxpayers’ money on advertising at media outlets in a disproportionate manner in places where spending could not be supported by market shares and sales successes? This analysis attempts to answer these questions tracking events in the following manner:

– History of the developments of the media empire close to Fidesz

– Characters partaking in the operation of the empire

– Winners of media procurement contracts

– Allocation of public advertisement

– Favorites of the system

– Suggestions for a way out

PART I:

History of the Development of the Media Empire close to Fidesz

After the change of 1989 there was a rising demand on the conservative political right to have the governments level out the Hungarian media market which they considered to be overly left-leaning and liberal due to a new “ideology” and a new circle of media owners after the privatization processes of the Hungarian media. This view, initially expressed by the radical right, was internalized by Fidesz after the major conservative shift of the party, and “media balancing” became a prime mission of the media policies of the first Orbán government by the end of 1998. The first steps to achieve this included strengthening Magyar Nemzet and creating Heti Valasz, a conservative weekly magazine. Besides this, they could count on the public media’s help, which is always loyal to the ruling government, and also on the power of Mahir Poster, a billboard company already owned by Lajos Simicska.

After the Fidesz defeat of 2002 there were serious questions raised within the party whether they had underestimated the significance of the media during their years in government. This was the first time Fidesz realized they needed a stronger and wider media portfolio. First they created Hir Television from donations and investments of conservative businessmen. In 2005 (Fidesz oligarch) Gabor Széles launched Echo TV and acquired Magyar Hirlap which, within a mere six months, Széles turned into a forum frequently supporting extreme right views.

After sensing the inevitable fall of the left-liberal coalition in 2010, businessmen close to Fidesz started to show more and more interest in the media market. Just before the elections two billboard companies were acquired (Euro Publicity and Publimont) and also the two main national commercial radio stations’ frequencies were put up for purchase. One frequency was sold to Class FM, a company tied to pro-Fidesz businessman (one of the the strongest ones) Zsolt Nyerges. The other was sold to pro-Socialist (Neo FM). This was one of the largest, most scandalous political pacts after the change of regime in 1989. The Hungarian court later pronounced it illegal, as well.

After this, in 2011 Károly Fonyó, a businessman close to Simicska since the mid-1990’s, bought the publisher of the free daily paper Metropol from the Swedish Modern Times Group. Thus, the media empire close to Fidesz became by that time not only “ideologically” important but also in terms of business. It has acquired a truly significant media portfolio which includes five billboard companies (Publimont, Mahir Cityposter, EuroAWK, Euro Publicity, The Poster,) one national and one Budapest-based commercial radio stations (Class FM, Music FM), three daily papers (Metropol, Magyar Nemzet, Magyar Hirlap), two weekly magazines (Heti Valasz, Demokrata), two television channels (Hir TV, Echo TV) and the public media as a whole (M1, M2, Magyar Radio, MTI, Duna Televizio). Additional media outlets soon gravitated soon such a strong media portfolio–ones where the owners may not be described as classic pro-Fidesz individuals but the outlets are still allegedly close to Fidesz by their communication or personal networking patterns (TV2, Helyi Téma). The media portfolio was soon enlarged by a series of brand-new online right-leaning outlets (MNO.hu, Pesti Sracok, Tutiblog and the discontinued but then resuscitated Oxox).

The empire could have never been brought to life without the financial contributions of pro-Fidesz businessmen. However, it also had to be operated on a daily basis on the one hand, while on the other it had to be made profitable, too. There were several challenges to face. Hungarian advertisement revenues fell by close to one-third during the recession of 2008- 2009. Also certain elements of the portfolio were either too new or too weak to become attractive for commercial advertisers. By 2010-2011 it became clear that this media empire would not only face a lack of profitability without the intervention of the public sector, but that it would experience serious operational problems, too.

On the timeline below you can follow the building steps of the Fidesz media empire. Click the errow on the right or on the left or or drag the line below. (See original article for interactive timeline-ed.)

Thus, the Hungarian state and several stakeholders of the Fidesz media portfolio started to make it function financially. The most important means of achieving this was channeling state advertisement funds to the friendly media outlets. Certain media agencies had a pivotal role in this development: IMG, Vivaki, Bell & Partners and Initiative Media (more on this later.)

A parliamentary supermajority helped undermine the market position of competing companies. (See “Lex Mahir,” the advertisement tax and its amendments). Competition authorities did not deal with serious questions of cross-ownership in the media empire connected to Fidesz where significant media and advertisement agencies started to belong to the very same business circles. Meanwhile, the Media Authority helped clear the way primarily on the radio market for Class FM. In the meantime representatives of the government attacked several media companies (Sanoma, Vilaggazdasag, Origo, Index, RTL Klub.) Advocacy organizations for the communications sector remained silent, more or less, during the whole process and started to effectively cooperate only as late as 2014, after the ad tax introduced by the re-elected Orbán government.

Classical theories of free speech measure plurality of access to information by the diversity of ownership structures within a given media market. The more diverse they are, the more variegated the channels of information will be. Theories of this kind assume that a diverse ownership structure is by itself ideal, as this condition guarantees that numerous sources of information are offered for consumption, and also that “anything can be said and published” as long as the ownership structures are ideally diverse.

The change of government in 2010 brought about a significant qualitative change in this sense, too. The government, with its supermajority, passed laws not only abridging access to public information and blocking transparency but also making it more difficult to protect sources. The Fundamental Law was overriden by the Civil Code by state firms and agencies close to the government in order to block access to public information. Many of these cases landed in courts, even in the Supreme Court where the judges systematically ruled in favor of the parties requiring public information. But even after winning in court, it was difficult for them to receive the piece of information deemed public by the courts. Meanwhile, the government kept trying to amend the Freedom of Information Act to make access to public information much more difficult. At the same time another trend developed, too. Non-government affiliated media outlets started to stop providing political and public affairs-related content under the pretense of staying neutral. Commercial advertisers started to be unwilling to place ads in media outlets that had taken up the role of opposition, openly confronting the government, even in cases when these outlets had appealingly high ratings and sales for the purposes of any advertiser. In 2014 Fidesz tried to gain influence even on the online media market. The first step was getting rid of Origo editor-in-chief, Gergő Sálinger. The government also leaked the idea of an internet tax on a seriously large scale, which would have made it financially strenuous for the general public to access online content.

Even though the ownership structure of the Hungarian media remains somewhat diverse, it is far from ideal. In numerous cases the owners have ties with the government that are not ideological but financial in nature. One such company is Hungarian Telecom which, being a giant communications service provider, is interested in a number of public procurements. FHB Bank and Private Saving Banks are within the scope of interest of Zoltán Spéder, owner of CEMP and publisher of Index. Zoltán Varga, one owner of Central Media Group which publishes Hir24, also has interests outside and beyond the media market.

By 2014 hardly any players remained on the Hungarian media market which had maintained a healthy distance from the public distribution system of some of the previous governments. When we pose the question of how Fidesz managed to restructure the power dynamics of the media market in such a very short time with hardly any obstacles, let us not forget that even before the second Orbán government of 2010, there had been serious behind-the-scene deals on this market, both political and economic in nature.

This short historical overview of events was essential, in our view, to be able to understand the simplicity and complexity of the developments after 2010. When reading this analysis it is important to keep in mind that the actions of previous governments were indispensable to the start of a new era in the Hungarian media and advertisement market.

The Most Important Questions

What is of prime importance, of course, is the question whether we can definitely claim that the system is corrupt and, if so, how much are we talking about? Both questions may be answered simply. We have no hard evidence, no emails or documents and no witnesses in connection with any of the stakeholders in this story. We do have, however, some well-written, in-depth articles that assume, with a sound reasoning, intentions of exerting pressure and cunning intent. But these cases are mostly mere occassional disruptions in the well-oiled system.

Common sense requires, however, that there are some fundamental models and recurring phenomena that raise the risk of corruption. And while these cases do not constitute hard proofs or evidence of corruption, the more they occur in a pattern, the more likely it is that we are dealing with corruption. (Concerning these cases please, refer to reports by Transparency International.

And we are not dealing with isolated cases, but a systematic method of corruption. According to this theory the risk factors are the following:

Revolving Door Effect. Some individuals, after leaving the private sector, entered the state administration or certain areas of the government and started to influence the laws and decision makers, if they themselves were not the ones making the decisions. The reverse is also true: on becoming a private entrepreneur, a person may gain from his or her personal network, knowledge of insider information, and effective connections within the administration. In short, the question is, who exactly are the people operating this sytem and who benefit from it?

State Capture: Closely related to the revolving door effect, the interconnectedness of the public and the private spheres results in common decisions to legalize previously unlawful practices which are beneficial to some stakeholders and highly disruptive to others. Applying existing laws in a selective manner constitutes state capture, too, as does the practice by which government authorities and surveillance bodies participate in processes that result in favoring certain market players at the expense of others, even as they ignore signs of corruption and official responsibility for investigating suspicious cases is dampened. (Such authorities in Hungary are the National Media and Infocommunications Authority, the Hungarian Competition Authority, the Public Procurement Authority, prosecutors and other investigative authorities). In short: what are the coordinated efforts of those operating this system and those benefiting from it?

Reduced / Low Competition: A concentration and accumulation of wealth arises from the decrease of competition in the field of public procurement with less and less competitors. Decreased competition is usually achieved by either an outright pressure from some agents on potential competitors not to even enter a bid, or by their voluntary acknowledgement that there is no use submitting a bid as they have zero chances of winning. Governmental efforts to reduce competition can be proven by the fact that several agencies either ignore procurement in the first place or create such conditions for tenders that fundamentally reduce the number of those who qualify to enter. An example of the former is the method of fragmenting the budget offered on a tender into such small sums that the bid gets pushed below the threshold over which public tenders must be held by law. In this way, there is no need to offer it up for competition. Another example is when an agency putting out a bid decides, on its own, based on its own interpretation of the law that there is no legal requirement for public procurement. We may see this latter method in action in the case of public procurement projects open only to a selected, limited group of contenders. Or when the required references of the contenders are so unique that only a specific circle of players are able to live up to the conditions to enter. It might be suspicious, too, when a tender is put out for a very limited period of time. The most telling phenomenon, however, is when things do not end up according to plans, meaning that some agent outside the favored circles manages to enter, posing a threat to the insiders. In this case the authority putting out the procurement often cancels the project or disqualifies the outsider competitor citing one reason or another.

One-way street to the flow of money: The path taxpayers’ money takes is one direction, traveling always on the same route. Investigating both the starting and the end points, it turns out that members of the circle are always the very same people.

Simulated competition: Procurement participants act as though there is competition. One sign of simulated competition is when the same companies are always bidding on the same public procurements, formally satisfying the requirement of having a variety of bidders, but in reality the circle of interests is still closed and the individuals and the companies behind the bids are always the same.

Reduced/Low transparency and accountability: State corruption requires that the beneficiaries aim for laws that reduce transparency and accountability.

A narrowing of legal remedies: This can be achieved by raising the costs of legal remedies by making changes in to the legal system or wording laws so broadly that they can be interpreted by authorities in a strikingly differently manner depending on whether the powers that be want the party in question to benefit or not from the interpretation of the law in question.

Naturally, there are numerous other corruption risks besides the above mentioned ones. The ones we listed are what we consider to be the most prevalent in the last decades of the Hungarian advertisement and media market. The question we next pose is how these factors have been applied and altered during the second Orbán government compared to that of the socialist governments preceding it.

Acknowledgements

We would like to thank Istvan Janos Toth and CRCB, Corruption Research Center Budapest under Toth’s leadership for their cooperation in investigating communications-related procurements. The clean and processed data on public advertisement we purchased from Kantar Media Market research company. Rita Zagoni of the Microdata Working Group of Central European University provided invaluable contribution to this project. This series of articles would not have been possible to produce without the work of investigative journalists and researchers putting a spotlight on the abuses and irregularities on the advertisement and media market of Hungary for the last four years. Without an exhaustive list we would like to mention: Gergely Brückner (Figyelo), Gabor Csuday (ex-Kreativ), Gabor Ferencz (Atlatszo), Aron Kovacs (ex-HVG.hu, VS.hu), Ildiko Kovács (Atlatszo), Ferenc M. Laszlo (HVG.hu), Babett Oroszi (Atlatszo, RTL Klub), Andras Petho (ex-Origo, Direkt36), Gabor Polyak (Mertek), Pal Daniel Renyi (Magyar Narancs), Krisztina Rozgonyi (PPKPartners), Laszlo Sandor, Andras Szabo (VS.hu), Zoltan Szabo (Index), Gabor Tenczer (Index), Agnes Urban (Mertek), Balazs Weyer and the whole editorial staff of Kreativ.

PART II.

THE MEDIA SYSTEM OF NATIONAL COOPERATION

In the first part of this article we aimed at describing the individuals playing important roles in the operation of the system. These individuals are fundamentally close to two circles, from holding positions in the state bureaucracy through sitting on boards in huge public companies through being in the decision making bodies of favored agencies and media outlets. The larger circle is connected to businessmen Lajos Simicska and Zsolt Nyerges. The other, significantly smaller interest group is connected to a Fidesz politician, Antal Rogán and to an individual very close to the heart of government, Arpad Habony.

It may sound surprising, but at the time it did not occur to us that there may be overlaps in the two groups. While compiling the list of CEOs of the largest state advertisers, we realized that they are the exact same individuals from the Atlatszo article before. It is not by accident that none of those individuals stayed in their positions after the formation of the third Orbán government. (More about the consequences of this development at the end of this study.)

Public Sector and Administration

After the formation of the second Orbán government, more and more people close to Lajos Simicska and Zsolt Nyerges appeared as heads of state-run companies and in the administration, for example Kálman Szentpétery in Szerencséjáték Zrt. (the state-owned gambling service provider), Gergely Horváth in Hungarian Tourism, Zoltán Petykó in the National Development Agency, Csaba Baji in Hungarian Electrical Works Ltd., Csaba Fazekas at MTVA (umbrella organization for Hungarian Public Service Media) and István Töröcskei at the Government Debt Management Agency.

Heads of the two most important oversight authorities of public procurements are also proven to be connected to Lajos Simicska: president of the Public Procurement Authority, Robert Gajdos and head of the Public Procurement Arbitration Board, Zoltán Kövesdi. Also, the authority regulating the media with administrative measures, the National Media and Infocommunications Authority, is led by the previous lawyer of the Simicska media empire, Monika Karas.

Details of who or what agencies are connected to the Simicska-Nyerges group are available in the Atlatszo article and the joint study of Atlatszo and Kreativ, so we won’t repeat the findings here.

The other interest group of the Fidesz media sytem is much smaller than the above mentioned one. Its main power center revolves around Árpád Habony, but we may consider the Századvég Group to belong here, too. This group did not build a large media portfolio during 2010-2014, their largest acquisition may have been the acquisition of the daily paper Napi Gazdasag. Another important player besides these is “HG 360” owned by Csaba Csetényi and Tibor Krsko, which received significant communication procurements (e.g. from the Government Debt Management Agency, the Hungarian Tourism Co., Hungarian National Bank.)

The system is extremely complex as the above chart demonstrates, but it is not impossible to untangle the threads. We may call the system a masterpiece by its organizational and operational professionalism, except that it was built not to serve some noble common goal but to minimize the risks of getting caught while channeling public funds to private pockets. How exactly was this possible to execute? We will show in the coming chapters.

PART III

THE DEVELOPMENTS OF PUBLIC PROCUREMENT IN COMMUNICATIONS

Most important facts:

During the second Orbán government close to half of the total budget for communications tenders was distributed through tenders involving a single bidder, which means, of course, no competition.

The great the amount of money at stake, the fewer bidders there were.

Two-thirds of the total amount distributed was won by only three agencies: I.M.G., Vivaki and Bell & Partners.

Among the top ten agency/media outlets winning the highest amounts, six can be identified as having connections to the government or to the economic hinterland of the governing party.

Introduction

After each new election there is a noticeable change in the favored stakeholders of economic circles. Economic handovers are not Hungary-specific, this is a well documented development in Western Europe as well. Old players are substituted with new ones, not so much for reasons of classical party ideology in the field of communication procurement, but to channel funds in a trustworthy, safe and reliable manner.

Communications tenders is a perfect field to enhance the analysis of the develpoments of political handovers. Analysing data will show that the biggest winners completely changed with the change of government, also that the higher the procurement budget, the the less the competition, and the less effort required on the part of the biggest winners.

Method of Data Gathering

The analysis was executed in cooperation with the Corruption Research Center of Budapest (CRBC.) The foundations of this research was based on the findings in the Hungarian Pubic Procurement Database (MaKAB) compiled by CRBC, from the data of the Hungarian Public Procurement Bulletin and the official EU procurement bulletin called Tenders Electronic Daily. To find the right procurements for our focus we filtered the database by their object with the application of CPV codes. We further supplemented the data with procurements we had found that were not shown in any of the official bulletins unfortunately, and also with those that we believe should have been put up for procurement but were not, even though taxpayers’ money was spent. We only focused on campaigns to which at least four of the following information was applicable: When was the result made public? Who put the bid out? Who was the winner? What was the object of the procurement? How many competitors were there?

We ignored procurements where only the agency putting out the bid and the winner of the bid were known, but when information about the budget or the number of competiors was unavailable. We did not include tenders that were purely put out for event organizational goals, for communication trainings or for merchandizing production. Thus, we only focused on tenders that were either purely or partly aimed at media acquisitions, PR services or tenders for creative or advertising agencies.

The initial database consisted of 1584 lines and 102 667 cells of data. After manual and softwer-base filterings of the initial data it boliled down to 898 lines and 5878 cells for the period between 05.01.2010. – 04. 30. 2014.

Unfortunately we were unable to gain reliable data for the Gyurcsany – Bajnai governments, that is, for the pre-2009 period due to the highly bad quality of data and gaps in the database. CRCB is working on a limited scope of comparative statements based on 2009. Their findings will be published later. A well founded comparison of the two governmental cycles would only be possible if the Public Procurement Agency retroactively reformatted the old data through 2006 using the present formats, which are still not very efficient in practice.

HUF 30 Billion (USD 110 million) Awarded Without Competition

Under the second Orbán government the public sector distributed HUF 60.4 bn (USD 224 million) plus VAT via 898 communication procurements. The administrative system of the Orban government became smoothly operative by the end of 2011, that is, when all the new key decision makers were put in place and the new way of handling procurements became effectively operational. In 2012 there was a major wave of public procurement which, by 2013, continuted to result in the spending of previously unimaginable amounts of money on communications. This wave of procurement was high all the way up to the elections. By the end of 2014 within a period of four months the government distributed 85% of the money it had done so only the previous year. In the last campaign period leading up to the election the government spent as much as 50% of its total budget for the full four year cycle.

Most of the tenders were drafted with such amounts that stayed below the legal requirement for transparent procurement procedures. The results of these bids, however, were nevertheless published in the official procurement bulletins. The ratio of tenders of this kind was 80.6% (724 tenders) but the money distributed in this manner was only 12.8% (HUF 7.72 billion net) of the total budget for such projects.

Most of these tenders were small, local projects worth HUF 8.6 million on average. These tenders had some real competition present since on average there were 2.66 bidders for each project. There are some signs of competition even in the tenders distributing HUF 25-100 million (2.7 competitors for each tender). But above this amount there is a significant drop of contenders: the average number of bidders for HUF 100-500 million was 2.05 while the average number for tenders with HUF 500-1000 million was 1.78 contenders. Above HUF 1 billion the average dropped to 1.75 bidders. We can conclude that the higher the amount, the fewer the number of bidders.

One explanation for this may be that handling projects of such magnitude does require highly special skills and experiences. However, a lack of at least two competitors for bids over HUF 500 million cannot be explained for by a lack of expertise. It is even more obscure knowing the fact that bids over HUF 500 million (of which there were only 28) distributed 65% of the total of public funds for communications bids in general.

It may be up for debate how many bidders constitute the conditions for a proper competition but it is self-evident that one competitor means no competition. Such communication tenders, however, were worth HUF 30.2 billion (USD 111.8 million) during the previous Orban government. The public sector granted close to half of the communication budget, 49% of it to winners facing no competition at all. When we investigate bids with two competitors, which we also consider a highly limited pool, the budget dispersed this way is 62.6% of the total for such purposes. For comparison, in the commercial sector there are usually 4-5 agencies invited to communication tenders.

Giants Do Not Go into Battle

Even under the previous Orbán government several news articles revealed that the communications market had some serious heavy-weight champions. Not only the specialized press but the biggest online new portals showed a lot of interest in I.M.G. Inter Media Group, Vivaki or Bells & Partners.

In the previous section we already described in details the personal network of the greatest beneficiaries of the system and the very ways they are connected to Fidesz or its economic hinterland. Out of the ten companies receiving the most public funds there are five which show an unquestionable connection to the government and its base economic players (I.M.G.,Bell & Partners, Young & Partners, Hung-Ister, Thema Publishing House.) Besides, we have to note that Mahir Group (Mahir Cityposter, Mahir/Monday, Mahir Exhibition and Events) won a further HUF 1.5 billion. But now we limit our focus to the amounts granted to the most successful agencies and also to the competition environment in which their successes took place.

From the diagraph one may easily pinpoint the advantages of the above-mentioned agencies within the total procurement market. Of the total of the public funds distributed I.M.G. won 30.28%, Vivaki 18.62%, and Bell & Partners 14.04%. These add up to the 62.94% of the total funds, HUF 38 billion.

Even more noteworthy is the fact that the three agencies winning these tenders had a lower than average competition. I.M.G. and Bell & Partners won 14 tenders where there were no other bidders, Young & Partners, also close to the government, won in 9 such cases.

Thus, 77.9% of the total funds granted to I.M.G. on public tenders was given to the company in a zero competition environment. The same is true to 70.43% of the money gained by Bell & Partners, and 79.24% at Young & Partners. With Vivaki we were unable to caculate the proper percentage due to a lack of information on the number of other bidders in one of the cases.

The information on tenders published in the Procurement Bulletin and the Tenders Electronic Daily on many instances merely reveal how many companies entered a bid but do not reveal the names of the agencies. Thus, it is impossible to factually demonstrate who exactly competed against who else. Nevertheless, by the data available we can still state that on numerous occassions it was the biggest 2-3 agencies competing against one another in procurements.

As described in the above paragraphs there are two corruption risks strongly preaviling. First, the fact that more than 60% of the total budget distributed (for media spaces, PR projects and advertisements) was granted exclusively to three companies. (70% of the total was given to five of them!) Second, the companies did not have to compete at all to win, or, at best, they competed against each other. Meantime in Hungary there are numerous other advertisement, PR and media agencies. Kreativ magazine publishes the financial results of the sector annually, measured by data from 100 advertising agencies, 25 media agencies and 60 PR agencies. But there are even more than that operating in Hungary.

Outstanding Cases

Beyond the data there were several procurements where the pure description of the developments raises suspicions for corruption, or we may say at least that there were several corruption risk factors present. In some cases the documented background of a bid is even more revealing than the result of the tender. Moreover, the main players in these cases are the very same agencies and companies we have been describing so far.

One such case was the procurement put out by NMHH, the National Media and Infocommunications Authority in August 2012. The other such case was a media acquisition by the Hungarian National Bank in December 2012. A third such case is another procurement for acquisition by OHÜ (National Waste Management Agency) in August 2012. A fourth is a tender for the effective application of the advertising interfaces of the Budapest Public Transport Company (BKV). It is of no surprise that the winners of the tenders were I.M.G. (Media Authority and the National Bank,) Bell & Partners for the Waste Agency and the billboards used for the advertising goals of the Public Transport Agency belonged to Publimont, Euro Publicity and EuroAWK, all connected to businessman Lajos Simicska.

The Case of the National Media and Infocommunications Agency (NMHH)

There was a consultancy firm executing the procurement for NMHH which excluded all competitors of I.M.G. from the bid in an intricate and legally questionable manner. One company from the excluded stakeholders ended up disputing the case but they were unable to put out the required administrative service fee which was 1% of the total sum in the bid, in this case HUF 19 million. Thus, the consultancy agency of the exluded party put in a private complaint at the Public Procurement Authority (KH) and at the Hungarian Competition Authority (GVH.) The first authority repeated its requirement of the high fee, this time required from the consultant, 1% of the whole procurement budget. The Hungarian Competition Authority turned down the case based on the alleged lack of legal basis of the losing company to even start such a procedure in front of the Authority. But the Public Procurement Arbitration Board may start a procedure ex officio, too. However, there was no such case started. NMHH had no choice, after all, than to grant the procurement project to I.M.G., the sole contender in the bid.

The Case of the Hungarian National Bank

There was a net HUF 200 million tender disputed at the Public Procurement Arbitration Board by no other than I.M.G. itself. The company argued that the tender required the bidders to disclose their pricing policies in the documentation for the tender. I.M.G. felt it hurt the business interests of the competing companies. Furthermore, they said, the prices offered by the National Bank were calculated in an unprofessional manner. The expertise of the bid was indeed criticized by other competitors as well. Nevertheless, the Arbitration Board decided in favor of the Bank, arguing that I.M.G.’s interesests were not abridged during the procurement procedure. But this decision was made after the government got rid of Andras Simor, previous head of MNB so the whole procurement was canceled before the new bank management could set up. The Bank put out another tender later, under the presidency of ex-Minister of Economy Gyorgy Matolcsy. The new media buy-up procurement’s budget has been the single largest sum for such a purpose ever in Hungary: HUF 6 billion, won by the sole bidder: I.M.G.

The Case of the Waste Management Agency (OHU)

Suspicions were raised in this case by the extraordinary and unusually short time frame given to contenders after the tender was made public: only three days. This was so outstanding that it drew the attention of even opposition politicians, LMP (Another Politics Is Possible) pressed charges for misappropriation of public funds. The tender still went along as planned and it did so with one single bidder, Bell & Partners, which happened to win. The Public Procurement Arbitration Board did start a case ex officio this time and finished it by concluding that the Waste Management Agency broke the law with the bid. They had to pay a fee of HUF 5 million to OHU but the result of the procurement was not undone.

The Case of the Public Transport Agency (BKV)

Suspicions were raised in this case when no public procurement was put out at all. What is more, the details and conditions of the tender they did put out were tailored exactly to fit only the billboard companies close to Lajos Simicska: Publimont, Euro Publicity and EuroAWK, which were competing against only each other. Another company, Peron, outside the Simicska empire and excluded from this bid due to the peculiar conditions started a procedure at the Arbitration Board. Another company, Epamedia, also excluded from the bid joined in as a stakeholder in the case. During the investigation light was shed on the fact that one of the people in the commercial department of BKV who participated in the construction of the tender was a certain Marton Viszkei, an ex-owner of Euro Publicity and also ex-owner and executive of Bell & Partners. The Arbitration Board decided that BKV’s bid was illegal and had to be started anew in the form of an official public procurement procedure. In May 2013 BKV complied the new document and put the procurement draft up for debate for the General Assembly of the City of Budapest. The procurement concluded again, almost exactly, with the previous conditions, fitting and benefitting the same companies topped by new conditions which simply did not make any sense. The General Assembly killed the draft on the very day they were scheduled to discuss it, in paralel with Kreativ Magazine making it public that the new bid’s core elements limit competition again. The procurement was never realized in the end.

Analysing communications procurement this way satisfies our efforts to pinpoint the anomalies of the projects. We also have to note that procurements are not very profitable for agencies since they only receive a very low commission fee for their work. Knowing this, we have to take notice of the outstanding improvement of revenues and profits at the biggest winners of tenders under the previous Orban government according to publicly available information on the companies. Media space acquisitions are especially not beneficial for agencies when their job is limited to spend 100% of money given to them by the customer at other companies, thus, in public procurement cases: in the name of the government. So obviously the most important question to ask in relation with such buy-ups and agency activities is which directions did public money flow from agencies to media outlets.

PART IV.

DISTRIBUTION OF PUBLIC ADVERTISEMENTS (05.2006. – 04. 2014.)

Database: Kantar Media, Adex, public sector

Method of information gathering: Kantar Media search

Data was not available for free

Systematization of data: in Excel, per government cycles, per year, per month and per ownershi, per medium and per sum / time purchased / space purchased

Used records: 7600 lines (629 730 cells)

Period in focus: 05.31. 2006. – 04.30. 2014.

Visualising sofwer: Tableau Public

We are not authorized to make the database of Kantar Media available for the public in order to enhance oversight of our findings.

Most important facts:

During the previous Orban government 51.66% of public advertisements were granted to commercial media outlets owned by businessmen close to the government or to the public media conglomerate.

This picture is fallacious once we investigate the data separated by media types. In that case our findings are the following:

Daily papers: 68.23%. Weeklies and monthlies: 21.76%. Radio stations: 86.06%. Television channels: 51.33%. Public places: 74.12%. Online: 0%. It signifies that advertising money spent by the state or by agencies were distributed to a large part in sectors where the outlets’ owners are close to the government, or where pro-government outlets operate at all.

This practice is noticeable during the Gyurcsány-Bajnai governemt, too. However the proportion of the distortion by the state was not this prevalent then.

The fallacy, upheld by media agencies and the whole sector, cannot be sustained anymore that the distribution of state advertisement takes places in the most effective manner of the price/value ratio. On the contrary, advertising in pro-government media is rather costly. Portfolios include outlets that are inevitable, of course, but there is obvious over-advertising in outlets where no market data (no sales, no ratings) support the favoritism. What is more, the market position of the outlet favored is outright counter-effective for the advertiser’s (stated) goals.

Methodology for Data Gathering

As we had done before when writing about public advertising trends we purchased our database from Kantar Media Market Research Institution. Their data is uniformly used by the whole advertising and media market and other mediums (HVG.hu, Index) and researchers (Mertek Media Monitor, Whitereport) apply Kantar Media Data in their works, too. We purchased data for two government periods (2006-2010, 2010-2014.) Costs are calculated by the official list costs of the mediums in focus, which means we did not deduct discounts given to agencies. In short: we calculated with the price we would be given if we showed up at the door of any given medium to inquire about the price of advertising at their outlets or the price of putting up billboards. Kantar Media systematically records, on a daily basis, every advertisement piece at most mediums of all types. They catalog the data and summarize the findings by list prices. It means that the data does not reveal the actual true prices offered to agencies. We cannot tell exactly how much was spent here or there in the media. The data merely helps to describe trends or ratios. It is important to know that according to common knowledge in the industry an advertiser may be given as much as 40-50% discounts.

Besides the prices the Kantar Media database includes the number of spots or surfaces purchased, in the case of radio and TV the minutes spent on advertising. This data is more helpful for our conclusions. For various reasons, though, Kantar Media does not record in its database the advertising spots and the acquired minutes at several significant outlets close to the government. Such are Hir TV, Lanchid Radio, Mahir Cityposter or Echo TV.

To be able to compare and better comprehend the two government cycles we needed to make changes in the Kantar Media database. Europlakat, which is the previous name of Publimont, is shown under the latter name only. The company JCDecaux is referred to exclusively with this name at each year, aggregating the separate advertising renenues of separate companies belonging to the ex-Epamedia Group and other companies of the Group. On the online media market we changed, for the sake of easier understanding, the previous index.hu name referring to CEMP to exclusively CEMP in the whole of our study.

With no deference to government cycles we counted as pro-government the following outlets:

any medium under the direct management of the governemnt, that is, the state media

any medium where ownership can be directly linked to the government’s economic hinterland

any medium where the owners, even though not belonging to the government’s economic hinterland, repeatedly and publicly stated support for the politics and economic policies of the government.

Introduction

One of the most debated questions of the Hungarian media market at any time is the distribution of public advertisements. Although the state does not constitute the largest advertiser on the market, it is still a considerably important factor when it comes to the revenues of media agencies. The reason for this is that the financial results of a media company may be seriously altered by the distibution of state advertisements due to the fact that a significant portion of the Hungarian media market always counted on advertising revenues from the public sector. This automatically resulted in a hierarchy of winners and losers depending on changes made in the distribution practices. This magazine does not share the view that the state should not be allowed at all to enter the communication market, that the government should not communicate. There are numerous public projects, tasks, services that the general public should be informed about. But there should also be some common sense limits set. The prime goal of public spending on advertisement should be highest efficiency and lowest spending, that is, the best price/value ratio of the message and the target audiences. This has not been the likely case since April 2010, nevertheless, the media portfolio became outstandingly strong in paralel with the strengthening of the media empire close to the government. This is the reason why it became possible by 2013-2014 that a certain campaign or a certain public communications goal could be achieved by advertising almost exclusively at pro-Fidesz outlets, producing the same results as if the advertising portfolio was more mixed, dispersed.

To prove our point it would be beneficial to compare public and commercial companies’ advertising practices. The “out-of-home” (previously: “public places”) media market shows that there are significant modifications in the advertising logic of the two sectors in last two years, according to the Kantar Media database. The best methodology would be to compare media mixes where similar campaign messages target similar groups in order to spot the differences between the practices of the two. But such data on commercial advertisers is only available to their own agencies. Even if we were allowed to look into the books we would breach business confidentiality by revealing the data. And even in the case we were able to access and reveal the information on commercial advertising practices we should keep in mind that private sector players often tend to make favors to any governments when making the decision to spend a share of their advertising budgets at pro-government outlets rather than at those of the opposition. Experts of the radio market have told us of such orientation adjustments after the change of governemnts.

By the election of April 2014 the market share and weight of the pro-government media became very significant. Some parts of the portfolio became unavoidable not only to public advertisers but to commercial ones, too. The 2014 state of affairs did not come from nowhere. As early as 2010, right after the change of government it immediately started to be enhanced with the help of the administration, lawmakers and the disproportionate public advertising practices. When we make the conclusion that distribution of public advertisements was disproportionate and unfair we also have to keep in mind that the whole media power structure was forcefully altered by the governnment with administrative measures as well.

Catching Up At the Finish Line

During the second Orban government the public sector spent (on list prices) HUF 80.46 billion on advertising. But the previous Gyurcsany-Bajnai governemnt had spent HUF 3 billion more than that. Both governments needed some time, as it was shown in the case of procurements, to be able to take over positions in the administration and to get to know how to operate the system smoothly enough. With each change of government public spending comes to a little halt. At the start of the Gyurcsany-Bajnai cycle this was not as much the case since they came to power as a continuation of another Socialist-Free Democrat government already. That cannot be considered a real change. The peak of that political cycle was 2008 when NFU, the National Development Agency handling EU development funds, started to communicate on a truly large scale.

Large scale media buy-ups of the second Orban government started somewhat slower but by 2013 Fidesz caught up and spent even on a larger scale than the Gyurcsany government’s peak year of 2008: the public sector spent on a list price a sum of HUF 26.7 billion. This trend is similar to the one shown before about public procurements, that is, it reveals that the public sector starts to communicate extremely much through the media once we are closer to the general elections. The chart by month shows really clearly how the two governments spent public money during election campaign periods and during the very months prior the April elections.

Charts by media types show us the favoritism trends of the two governments. While the Socialist-Free Democrat government preferred national television channels and daily papers the second Orban government was more visible and active on billboards, in radio stations and on the internet.

Charts by advertisers show us the most active public advertisers under each governments. Those who spent very little were filtered out of the charts. The ones we put in the chart are public advertisers that are either fundamentally significant or they can demonstrate a major change in their spending habits when we compare the two governments.

Under the Gyurcsany-Bajnai government fundamentally the ministries spent the most and also the NFU, the National Development Agency, the Gambling Company, the Government Debt Management Agency (AKK) and the National Police Headquarters (ORFK.) Under the second Orban governemnt the National Police spent less on advertising, NFU and the Gambling Company lost some of its significance but remained big, AKK stayed a large spender and some other new players joined the club. Some of them are: the Hungarian Postal Service, Hungarian Electrical Works, the Office of the Prime Minister, the “Erzsebet Voucher”, the Media Authority, the public media, Hungarian Tourism Co., the Student Loan Center and the National Bank.

All Pointing in One Direction

Readers may be the most interested in what mediums were rewarded with the most money, in other words, how much of the taxpayers’ money landed in the hands of which media owners?

Under both governments we can see patterns where some media outlets receive much more. The question has always been the same: was it cost effective for the public sector to spend public money at those outlets or would it have had a better price/value ratio if the money was spent at other outlets?

This is an especially sensitive question when on both sides of the political isle the majority agrees that governments are obliged to “honor” outlets close to them in one way or another, with public advertisements, for example. But under the second Orban government – as it will be demonstrated soon – the policy went far beyond the mere aim to reward uncritical media outlets with a little extra for their support of government policies. The builtup , the structure of the new system is rather about the most effective methods of channeling public funds to private hands in the form of profits for the pro-Fidesz media owners.

Below we are listing the several types of media in separate charts. Every type has four charts on its own, you can access each by clicking on the marks.

Chart 1 shows how much one medium received through public advertisements per month, under both governments. Separate colors indicate separate mediums and the size of the circles correlate to the received amounts. We also signify separately if a noticeable event took place, for example, a change in ownership.

Chart 2 shows the same as above, except for the breakup is annual instead per month, of the received sums and the purchased spots, the line follows these trends. The width of the line correlates to the number of spots purchased and to the amount of money spent.

Chart 3, the circle diagraph shows the percentage proportion of the sums received from public advertisement budgets by the separate media outlets, again, under both governments.

Chart 4 shows which public advertiser spent how much at each medium, under both governments. Size of the circle correlates to the amount of money spent.

We believe these charts satisfactorily paint a picture of the distribution of public funds, of the beneficiaries and of the details of where and for how much public agencies advertised. Have a good time investigating and filtering the graphs!

Now we will analyze the several media types separately. Although the charts speak for themselves in many cases, in order to enhance understanding we summarize the main observations and the circumstances which allow for several questions concerning some of the beneficiaries.

Note: Nepszava runs under two publishing houses in the Kantar Media database, as Editorial Kft and Nepszava Publishers. Their figures are to be counted together in the sales years.

Most people both in politics and in ordinary walks of life tend to believe that the term “media market” equals daily papers (and TV channels) but there is a symbolic significance, beyond the pure figures, to the practices of governments in advertising distribution in the daily papers’ market. This is especially true to political/ public affairs dailies close to one or another political party.

We can see that although during the Gyurcsany-Bajnai governments it was true that left-leaning political dailies made more public advertising revenues it is also true that their ratings and sales at least correlated with the proportionately larger public spendings there. In contrary, the Orban government threw this rational logic out of the window. It virtually stopped advertising in Nepszabadsag and Nepszava while Magyar Nemzet’s shares were raised to 21% within the segment. Even Magyar Hirlap, which is not even audited by the Hungarian Circulation Control Alliance (MATESZ) and has no available public information, received more money (with a share of 5.12%) than Nepszabadsag (3.77%) and Nepszava (0.63%) together!

If we only investigate the four main national political current affairs dailies the perodical alternation of power relations is crystal clear between the two major political forces. Under the Gyurcsany-Bajnai government proportions were the following:

Under the second Orban government the picture was the following: Magyar Nemzet 66.69%, Magyar Hirlap 16.21%, Nepszabadsag 11.94%, Nepszava 5.16%.

Under the Gyurcsany-Bajnai government, even if the above proportions may be questionable, the spendings at least correlated with the sales of the papers and advertising spenditure was based on ratings. Under the second Orban government no market data or popularity or sales mattered at all.

No medium, however, produced such drastic jump in shares as Metropol did. While Metropol received 12.53% of advertising funds under the Gyurcsany-Bajnai governments it was granted a share of 42.05% from the second Orban government. State agencies sped up their spending there even more after there was a change in ownership in 2011 to the advantage of Karoly Fonyo, a businessman close to Lajos Simicska’s circles. Today Metropol is an unavoidable player on the advertising market, and it also raised sales significantly over the years. The proportion of it can be viewed as disproportionate.

The whole system of advertising shares received by the pro-government daily paper portfolio defies logic (altogether 68.23%.) We cannot investigate whether the target audience may be reached purely with this clean portfolio (or in a mix with other papers) or if a government message may be possible to get across to the public by advertising in these papers only. The problem lies rather in the disproportionate nature of the spending and the very prices. If we accept that fact that agencies winning communication procurement should spend the public’s money at the best price/value ratio then we can state that the taxpayers’ money spent here could have denifitely been spent more effectively and with more transparency while succeeding to reach the same percentage of the target audience.

To see the government decide otherwise may only have one underlying motivation, which is that the government meant to reach out with its political messages only to audiences that consume exclusively pro-government media. In this case the government wanted to inform solely this group about the outstanding successes of the public sector and its projects. Let us not forget that this may be a means to keep government supporters together. This could be a logical move but it may also be considered not quite ethical to apply the media budget of the state for party purposes.

The activities of advertising agencies also show a rather interesting pattern. It may be obvious that the Office of the Prime Minister is an agency that tends to advertise a lot in political dailies. This trend is normal, no matter who is in power. It is a bit harder to understand why it is worth the Gambling Company advertising in Magyar Hirlap, which has an insignificant circulation and reaches a very limited amount of people. Also, it is difficult to comprehend why the Hungarian Electric Works Company and its affliliates (MVM Partners Co., Paks II) were so enthusiastic about Magyar Nemzet that they spent 60% of their total budgets on advertising in these papers.

On the market of daily papers there are two interests that channel public money to the same direction: one of them is that the government, directly managing the whole public sector, decided to primarily communicate merely to its own supporters. It wants to explain to the pro-government segment of society government actions that are highly criticized by the opposition in other media outlets and at the same time the government also aims to soothe or to fire up its voters according to its purposes.

It is solely the market of weekly magazines where we cannot pinpoint a major unbalance of support for the benefit of pro-government media after the change in governments. But this is only true at first glance. The spectrum of weeklies is even larger than dailies and also there is only one pro-government magazine (owned by someone close to the governmemnt,) Heti Valasz.

But once we focus solely on periodicals of politics and current affairs we suddenly see a different picture. Although there are rather heated fights over the question of what political labels may be put on certain papers we chose to label Szabad Fold left-leaning liberal due to its ownership structure and 168 Ora and Magyar Narancs, too, due to their political stances. And although on our accord we would not put HVG and Figyelo into this same category we would like to avoid controversy over this and we follow common opinion labeling HVG and Figyelo left-leaning liberal magazines, too. If we compare the market share of these five periodicals with that of Heti Valasz we see a totally different picture. Let us assume, for our purposes, that the public advertisement revenue of these 6 periodicals is 100%. Under the Gyurcsany-Bajnai government the 5 left-leaning liberal periodicals received 80.82% of the public advertising budget in the sector. ( Szabad Fold: 26,81%, HVG: 22,78%, 168 Ora: 17,16%, Figyelo: 7,87%, Magyar Narancs: 6,2%). Heti Valasz receievd 19.18%. On the contrary, under the second Orban government the five left-leaning liberal periodicals received 32,08% (HVG: 16,73%, Szabad Fold: 7,22%, Figyelo: 4,56%, Magyar Narancs: 2,18%, 168 Ora: 1,39%), as opposed to the 67.92% granted to Heti Valasz.

It may very well be also asked whether the ratio of public advertising in periodicals during the Gyurcsany-Bajnai government reflected the political magazines’ significance, circulations and ratings or not. In our view it more or less did. We need to note that the fact that the left-leaning and liberal periodicals have a greater audience and a greater share of the magazine market is a handy tool for right-wing conservatives to see their theories supported about a “liberal media inbalance” on the periodicals’ market. Their way of countering it, however, is definitely an overcorrection, such as granting a proportion of 67.92% from the advertisement budget to Heti Valasz alone considering their circulation and market reach.

It is also important to note that political and current affairs periodicals make up one third of the periodical market. Fashion, lifestyle, car magazines and others in that brand have accounted for a very strong share of the market under both governments, which can be proven by market data.

Disclosure: Professional Publishing Hungary (PPH,) the publisher of this magazine, received HUF 12 mn 525 thousand during the Gyurcsany-Bajnai government. During the second Orban government revenue from this source was HUF 2 mn 859 thousand.

When trying to comprehend the advertising revenue shares on the radio market it is necessary to recall the gravest and most revealing corruption-smelling case of the last decade, which sheds light on the interconnectedness of the political and economical elite. It was the case of the radio frequency tender of October 2009 when Radio Slager and Danubius ceased to be and Class FM and Neo FM came to existence – illegally, which was even underscored by a court decision. Thus, the reshuffle on the radio market started with this scandal, even before the change of governments, then this event was followed by the “assassination” of Neo FM, which had been given to the Socialists as part of the deal described above. After the dismantling of Neo FM, Class FM ruled the market alone. This station was first owned by Zsolt Nyerges, later by Lajos Simicska and public advertising money was flowing uninterruptedly into it. The Media Authority (NMHH) did not re-offer Neo’s frequency in a tender after that station was shut down. It simply granted the frequency to the Hungarian Public Radio. In the meantime another station, Music FM was born, allegedly targeting the young generation, owned by an individual said to be close to Nyerges. Music FM started receiving public advertisement revenues even when it had zero official ratings data. Happening at the same time local and regional radio frequencies were being won by Lanchid Radio and the Hungarian Catholic Radio owned by Liszkay and Nyerges. (See the analysis of Mertek Monitor on this.)

When Neo FM was closed both the market and the public advertising sector assumed that it went down due to the recession, because advertisers became unable to support two major, nationwide commercial radio stations. However, it is interesting that since then both Class FM and Music FM have been able to raise not only its revenues but its profits, too, mostly because of their public advertisements. Thus, the state first influenced the situation by unevenly distributing the advertising budget in order to help create a one-player market and then it helped another station to be born and to become successful. On the radio market this is the story with the most interesting conclusions – not that much the distribution of funds, which may not come as much of a surprise. Under the four years of the second Orban government Class FM received 57.56% of public advertisements, Music FM got 9.56% and the Hungarian Public Radio received 14% of them. Neo FM, when still in existence, received 2.26%. We do not have access to the advertisement revenues of Lanchid Radio due to the previously-mentioned lack of this data in the Kantar Media database.

We also have to consider another factor which is highly unique to the radio market in Hungary. Advertising slots of Class FM, Neo FM and the stations of the countryside were sold to advertisers by Sonitus Media Agency, which in February 2013was acquired from the largest agency of the market, I.M.G. (at that time called Adversium) by Károly Fonyó, owner of Metropol, and a prominent member of Simicska’s circles. With this, control over the flow of public advertisements became unlike any other segment of the market.

The TV market started to become interesting when in May 2013 HVG wrote that the crown jewel of the Simicska-Nyerges empire may be the commercial channel 2. In the coming months there were many experts, we, too, who tried to figure out who the buyer may be. Besides the Simicska Group there seemed to be other contenders like the Swedish Modern Times Group (operating Viasat), some other businessmen close to the government, even some Chinese investors were allegedly players of the game. The idea that the purchaser will be close to the government did not seem to be unfounded knowing that the CEO, Zsolt Simon has very good Fidesz connections. It was still a great surprise when in December 2013 it turned out that the new owner will be Simon himself, in pair with the then financial head of TV2, Yvonne Dederick, through the means of a management buyout. In pracitice it meant that Simon and Dederick were allowed to wait until a deadline of 2018 to pay the total sum of cc. HUF 15-20 billion to the previous owner Pro7Sat1.

This was obviously the moment when everybody got highly interested in the flow of public advertisement to the station TV2. It soon became pretty clear that a company with fundamentally great losses cannot be made profitable even through this method. However, HVG.hu reported last March that certain businessmen close to the governemnt appeared at several media agencies with the aim of “persuading” them to channel a considerable share of their commercial advertisements to TV2. Then the advertisement tax was introduced after the start of the new Orban government. Of the ad tax even the government acknowledged what was common knowledge by then: that they steered the tax against the commercial channel with the greatest share on the market, RTL Klub, furthermore, that it was amended on numerous occassions to help tv2 avoid the tax in the year 2014 yet. According to publicly available data 80% of the advertisement tax was paid by RTL Klub alone.

Knowing this, the other data are actually not that suprising. They show that the government started to advertise more and more during the year 2012 at tv2. But at that period it was still just a couple of months where some peaks of spending appear. The flow of significant amounts of money to TV2 started only in September 2013 when state agencies started to advertise there, especially the Office of the Prime Minister, the Gambling Company, the Hungarian Postal Service and the Hungarian National Bank.

Note 1: the company previously called Epamedia is shown as JCDecaux in the whole analysis

Note 2: the data applied is an estimate by Kantar Media based on voluntary disclosure by the billboard companies.

Out-of-home media, that is, the billboard market has been covered in details in articles before. By April 2014 the main information and data did not change very much. This is the type of media where there is hard to search for ideological purposes since bumping into billboards is not a choice. Billboards are right there, in front of us, in the streets.

On the billboard market interests close to Fidesz are traditionally very strong. After the privatization of Mahir Lajos Simicska acquired Mahir Cityposter, later joined by EuroAWK of Karoly Fonyo. In the history of the business conglomerate the greatest upgrade in the balance of power was when Euro Publicity, then the “big fish,” Europlacard, later Publimont were all acquired, too. The company group became the greatest competitor to Epamedia, since then called JCDecaux, which is a French-owned billboard giant. After the change of government the state started helping to pave Simicska’s path. The infamous Lex Mahir was drafted by an ex-Kozgep (that is, Simicska interest) executive, Zoltan Schvab in the Ministry of Development and it put important competitors like ESMA out of business by prohibiting to advertise on electric posts. (ESMA, a Spanish-French company was openly close to the Socialists.) A court case, ESMA vs. Hungary, is still pending in Strasbourg but at that time what only mattered was that one competitor was pulled off the market.

What started in the public advertisement segment in paralel with this, though, is hard to comprehend in any other way than a mere hunt for profits through public funds. This is what fattened up Publimont to become not only the greatest player in the billboard market but on the whole media market of Hungary.

Prior to the change of governemnt in 2010 there was gosssip that besides ESMA Epamedia and Hungaroplakat also have more or less strong ties with the Socialists and the Free Democrats. May it be so, data on the distribution of public advertisement does not reveal any bias. The billboard companies’ ratio of public funds for advertisement were in correlation with their positions on the media market, within their specific segments. At that time Epamedia Group (JCDecaux) had a share of 33.67%, followed by Europlakat’s (Publimont’s) 27.19%. Hungaroplakat was the third with a 16.7% share. The change of government turned everything upside down and inside out. Firstly, billboard advertisement grew largely, from the previous spending of HUF 8.5 billion to HUF 20 billion, which means the Orban government found it very important to advertise in the streets. And ratios changed in the following manner: Publimont 67,02%, EuroAWK 12,16%, JCDecaux 10,87%, not counting Mahir Cityposter which is outside the scope of Kantar Media. So those close to the government (Publimont, EuroAWK) received a share of 79.18% during the second Orban government.

As for public advertisers, what we see is that while under the Gyurcsany-Bajnai governments mainly the Police Headquarters (ORFK,) to some degree the Gambling Company and the National Development Agency (NFU) advertised on billboards, after the change of governments several state agencies started to advertise on billboards spending huge amounts on this form of publicity. It was not only the Gambling Company that raised its spending more than four times on out-of-home advertising but other large advertisers started to also do so: the National Debt Management Agency, the Hungarian Tourism Office, Office of the Prime Minister, the National Development Agency, the Postal Service, the Media Authority and the National Electric Company. As if they all acted upon some magic command, they all started to think, at the very same time, that it is best to start advertising more fiercely on billboards, especially if the billboards belong to Publimont.

And especially if prices were not really low. In the last several years, when investigating the market of out-of-home spaces most analysts emphasized that Publimont was offering the best value/price ratio in its mediamixes for public spaces. According to our data, however, we do not find this well-founded. By the list prices from the Kantar Media database Publimont is by far the most pricy. This could, of course, also mean that Publimont gives the greatest discounts but it is unproven. What makes transparency even more difficult is that the market of public spaces is the only one where list prices are not made public, offers are not available online. To give an example, winning procurements can be made easier by the appealing offer for huge discounts for billboards, trusting that Publimont (or in theory, any other agency) would give at least 60 or 70% lower prices than the original list prices. The only problem with this is that apart from the very agency nobody has any idea of the original list prices for billboards. Note that before the April 2014 elections the only field untouched by toughening regulations in the amendments to the Act of Election Procedures was the billboard market. That is, the only type of media on the market that is not transparent, which has no legal obligation to publish list prices and fixed price offers for political parties.

Within the Media portfolio of the Simicska-Nyerges-Fonyo Group public space advertisement was always the most profitable segment (see the third part of this article for more,) which was party due to the fact that a national network of this type of media may be operated with comparably low costs, few employees and very little added value, while subcontractors put up the actual billborads for extremely low prices.

Note 1: under the Gyurcsany-Bajnai governments Kantar Media changed the name of Index Co. to CEMP.

Note 2:the Kantar Media database estimates are based on the voluntary disclosures of the online companies.

The relative independence of the online media was never due to ownership structures but to the fact that newsrooms could operate either independently or in defiance of the expectaions of their owners. The very ownership structure, however, is unhealthy even on this market as well.

Online news sites did not receive much attention from the state and governments apart from official government press offices. But political and economic pressure got sufficiently strong enough to try to influence, in the last several years, even this type of media, which traditionally lacks capital, does not produce profits but has a great impact on public opinion.

The public sector started to advertise spectacularly on Index and in the CEMP portfolio starting May 2012. Close to the April election agencies of public companies started including Axel Springer and Ringier in their mediamixes, too. (At Ringier mostly the Gambling Company advertises) but they spent some money at Origo, too. This could be the reason why there was no significant difference between the revenues of the two biggest online news sites at the time (Origo 28,4%, Index 25,29%.) But under the second Orban government Index started receiving much more (Origo 18,69%, Index 43,58%.)

At Index the largest advertisers were especially the Gambling Company, the Office of the Prime Minister, and the Hungarian Tourism Office. Origo received the most funds from the Gambling Company as well, from the Office of the Prime Minister and the Hungarian National Bank.

How did agencies distribute their public advertisement budgets over the media market?

Patterns of spending by the agencies may be more revealing and relevant than investigating the very amounts and the very outlets where public agencies invested their funds for advertising. From the available data it seems that the distribution of public funds was organized and executed by a detailed plan. A system this smooth requires trustworthy government officials, media agencies and media outlets, working closely together. This is why we assume that investigating the agencies’ spending patterns may reveal how automated the channels of money flow were and where the crucial points of responsibilities were to be found. This is the point where it becomes interesting just who received the greatest procurement projects because they can be traced back to the public advertising agencies on the other end of the line, connecting the two dots.

Looking at the diagrams we may recognize a very unique pattern for the largest winners of public procurement, and a very different pattern for the rest of the winners. The data reveals that Bell & Partners, I.M.G., Initiative and Vivaki all favored the very same media outlets in about the same ratio at the first ten spots of the list. This signifies at least some common thinking. What is more, in their cases we are talking about a high amount of public clients, about numerous campaign goals and very different target audiences. Their common direction is even more revealing when we compare them to other winners of different procurements who spent public funds in strikingly different manners. We are not evaluating whether they did this for better or for worse. But the great difference in logics is obvious.

In summation, it is worth investigating the top ten media agencies that received the highest amounts for public advertisements. Under the Gyurcsany-Bajnai government it was the three national TV channels (RTL Klub, TV2, M1.) On the list of the top ten we have, besides Nap TV owned by Tamas Gyarfas, one nationwide commercial radio channel (Slager) one left-leaning daily paper (Nepszabadsag,) a free magazine (Metropol,) Axel Springer’s dailies in the countryside and the two biggest public space billboard companies ((Epamedia/JCDecaux, Europlacard/Publimont.) At the time neither Europlakat nor Metropol was in the interests of Lajos Simicska. After 2010 we are left with six of these companies but the ratios, the positions and priorities all changed. Most of the public adversiting budget went to the Simicska-owned Publimont’s billboard company, the second was TV2, and Metropol came to third place, which was by then a member of Karoly Fonyo’s business interests. Fourth was Class FM of the Simicska-Nyerges Group. A new player on the market was already Magyar Nemzet, a nationwide political daily owned by Simicska and Liszkay and also the billboard company EuroAWK owned by Karoly Fonyo. This means that five out of the top ten media companies receiving the largest public advertising funds belonged to the media empire close to Fidesz under the second Orban government. (We did not consider as pro-government either TV2 or the public channels which plain openly support the government.)

Nevertheless, we have to take one step futher in order to get the whole picture pieced together and we also have to investigate why it all happened: to put significant amounts of public money into private hands with the active help of the state bureaucracy. This will be analyzed in the fifth, closing chapter of this article.

PART V

CIRCLES OF THE BENEFICIARIES AND THE FINAL DESTINATION OF THE MONEY

It has been described in details who the very beneficiaries of the system are and who receive the most money. But we have not pinpointed as yet exactly how much money we are talking about. Money could be taken from the system in fundamentally two ways: either through the media agencies or through the media outlets themselves.

Agencies

It may be bizarre but media agencies do not necessarily make huge profits. Indeed, commissions from public or private advertisement are rather low. Of course it is quite relative what we consider to constitute a small commission, a small profit for the agencies. Every sector used to be much more profitable starting in the late nineties up to the recession of 2008-2009. Which means that the commissions of today do not seem to be outstanding.

As of now it is Bell & Partners (not listed prior to 2010) of all advertising agencies that generated the greatest commerce and the biggest revenues on its own market in a second year in a row (the most up-to-date data we have is from 2013.) Out of the media agencies I.M.G. was already the most profitable agency last year and Vivaki had the greatest revenues in the second consecutive year. Of the PR companies it is Young & Partners (top in both revenues and profits in 2013.) Out of the TV show producers it is Hung-Ister. It means that (largely due to winning procurements) some companies, unknown or tiny before (except for Vivaki,) have grown to be among the most significannt giants of the Hungarian communications industry within the last three or four years.

The graphs show the way that these companies were successful in both generating revenues and profits to a larger degree than other players in their sectors. In fact, profitability of the whole sector is accounted for by the very profits of these few companies, especially the producers and the PR companies.

Media Agencies

The whole system is built upon the goal to turn public money into great amounts of private money. Available company data shows a profit of HUF 20 bn between 2010-2013, which was generated by the media empire of Lajos Simicska, Zsolt Nyerges, Karoly Fonyo and Gabor Liszkay. But it is impossible to tell just exactly how much of it was contributed by the state of Hungary and the taxpayers of the country.

Naturally one might ask the question whether it is really, truly impossible to make these kinds of media portfolio profitsby making perfectly harmless, good market decisions? Especially with the background knowledge that a very strong media conglomerate was set up here, which makes sense even from a market perspective? Indeed, we are not stating it is impossible to make large profits from sales, commercial advertisement or from a most fair public advertising system, given a just distribution. These companies were made profitable to some degree even before the change of the governments. But there are certain circumstances which enlarged the role of the public sector in this development.

The Hungarian advertisement and media market is still under the impact of the 2008-2009 recession. The media market lost more than a quarter of its turnover, approximately HUF 50 bn. There are few profitable enterprises still standing on this market, except for one or two agencies where profit basically disappeared or drastically reduced. As opposed to this, the cumulative turnover at ther media empire in the interests of the Simicska-Nyerges-Liszkay-Fonyo circle almost doubled (Partly due to company acquisitions) after the change in governments. Its profits grew five times larger than before the change. The graphs also show that while the revenues on the gross market reduced, revenues of this particular media empire uninterruptedly enlarged, what is more, its profits grew in perfect harmony with the growth of public advertisements at their companies. To sum up, while on the market as a whole there was a drastic reduction, the Fidesz media empire was untouched by this in great part due to the public advertisements placed at their outlets. The chart on top also reveals that while in 2008 the revenue of the empire was only 6% compared to the revenue of the whole market by 2013 the ratio was 28% compared to the total (most of their outlets have exclusively advertisement revenues, except for Magyar Nemzet and Heti Valasz which have merchandising revenues as well, and also Hir TV which has significant turnovers from cable fees, too.)

There is another rather telling figure. Analysts of the sector estimate a global average profit ideal to be 10-15% of the revenues. However, the Fidesz media empire’s profit was 20.5% of the revenues in 2013. In details: Publimont had 39%, Class FM 35%, Hung-Ister 28%, EuroAWK 27,7%, Magyar Nemzet 23%, just to mention the most outstanding ones. These figures are breathtaking, knowing that 40% of the whole media market is not profitable at all and the profit of the total market, including the Fidesz empire, is a mere 1.77% of the renevues.

One may still ask whether there is a benign way of reading this. The Fidesz media agencies are just doing a way better job than everybody else does. Outstanding financial performance may be possible as a result of quite separate factors or of a synergy of several ones, which all stem from very low costs. For example there is a constant, calculable, highly recurring income source. There is no competition so spending on innovation is not needed. The service offered to the client may be low or just barely the same as any other competitor’s service on the market and the service may be offered overpriced to a client that does not care oabout spending efficiency. This article has shown exmaples to all of the above. Real market value of the outstandingly profitable agencies could have only been proven by the performance on a market with no public advertisement to distort it. It may very well be that even under the described curcumstances they would have become capable players by now as well.

Closing Thoughts

Before we wrap up this study we intend to clarify our own positions, too, because we are aware that there may be disagreements between us and our reader on some fundamental issues. We are, of course, aware of the fact that many people do not find anything improper in the system we just described. Certainly there are more people who believe there is something wrong with all this but the media market cannot be balanced out in any other way so it requires means as such. Others may go even further and understand the system to be fundamentally wrong as a whole, they may reject every bits and pieces of it but may still say that there are much greater problems Hungary is facing right now. HUF 20 billion profit in four years means only an average of HUF 5 billion annually so it should not sound a big deal especially if we are not able to tell exactly just how much taxpayers chipped in. For this much money maybe the whole system was not worth putting up in the first place. But it may certainly not have been worth writing a study of close to 100 thousand characters on it.

We, however, believe that all three arguments are false. Of course, our argument is not that the Fidesz media empire profits should be envied by anyone. Nor do we stand by the reasoning that the state should have no share in the profitability of a media enterprise. There is not a single media company ever profitable with no advertisement revenues from the state. What is chilling in the structure, however, is its builtup to serve the mutual interests of media tycoons and the government, to channel public money into the hands of private individuals. The significance of this phenomenon is way beyond purely the media market, what is more, patterns of several systems would show great similarities if we sketched a picture of other markets, for example of public contructions, real estate development or land procurements. Even the greatest beneficiaries would show striking overlaps, which means that the total of the (same) enterprise portfolio is not only about HUF 20 billion but multiples of this amount.

Going back to media companies we may conclude that under the second Orban government a media portfolio came to life that is both extremely powerful, due to help from the state, or rather, mostly of taxpayers, and also became unavoidable in several of its elements in Hungarian public life. The government and supporters of Fidesz may be happy about it but many will always think of these companies as ones which would have never achieved their great successes under fair and competitive market conditions.

What is more, the business model of these companies relies almost exclusively on state support. If we assume that the politics of the present government have a preference to enhance the successes of capitalists of Hungarian origin – which we consider a highly questionable mission – then the political parties of the government and also the numerous workers of the pro-government media will have to also face the following questions, too: how much of the HUF 20 billion given to Hungarian capitalists have been invested again in Hungary, in the service of creating jobs, supporting innovations, investments, incomes? At Magyar Nemzet and at Hir TV there were layoffs and cost reducing measures were introduced allegedly due to the changes of market conditions, or so did the owners say, when government policies drastically shifted on advertising at these outlets. Although so far it is hard to tell what influence the newly set-up National Communications Office will have on the already smoothly working system with its centralization of state advertising decisions. But as long as the media tycoons are successful in mixing up state influence with market conditions cynically or in a bening manner we may not hope for much change for the better in this field.

This may serve as a warning sign for those who are nostalgic about the pre-2010 market conditions for the advertising and the media sector. Under the Gyurcsany-Bajnai government the state, although to a smaller extent, also had big responsibilities in laying the groundworks for the re-positioning of the power structures in the last four years. Fragments of the system had already existed before 2010. The qualitaitve change was achieved by the masterfully planned systemic operation and the unforeseen concentration after 2010. So it should be of primary importance for either this or any other future governments to rethink the drastic vulnerability and dependency, to rethink the practice of state advertising, to talk over the necessity of all of the above with non-experts and experts alike, and to develop full transparency and accountability for the sector for a change. We still beileve, however, that this is impossible without the stakeholders of the market acknowledging of the necessity of a change, without their active cooperation in the change. They are the ones to take the very first steps.

By 2014 we are facing a media structure that may not be deconstucted at this point anymore. Governments of the future will have to face the reality that the new media powers and dynamics require that they just deal with it, make deals with the strongest media outlets of the Fidesz empire, like it or not, which are, by their ratings and sales, Classs FM, Metropol, or Publimont. They will have to show self-restraint to resist the urge to undo the wrongs, they will have to resist the urge to re-develop, to help the rebirth and reorganization of the media agencies that are being ignored by the present government in spite of their true market shares.

At last, we would like to emphasize that parts of the structure we have described may be found in other countries’ media markets, too. In Russia, Turkey, Bulgaria or Romania interconnectedness of political, governmental positions and the business interests of media tycoons are present, too. The Czech and the Slovakian media market have started to move into this direction, too. In Turkey the previous Prime Minister, President at present, Recep Tayyip Erdogan and his family own the largets share of the Turkish media market. In Romania the media oligarchs have serious impact on regulation distorting the media market, and in Bulgaria the government (the biggest advertiser) distorts the market just as effectively. In all of the above-mentioned countries there is a tendency for the international media enterprises to abandon these countries. (In Hungary we just said good-bye to the swedish Modern times group, the Finnish Sanoma, the German pro7Sat1 and also the German Funke-WAZ.) The most telling indicator of a sector in bad health is when foreign investors and the know-how start leaving the country. The first phenomenon makes a lot of people satisfied because they see a confirmation that not only liberal media markets may be viable, while the second phenomenon may make some happy by the growth of national ownership and shares by national interests.

International studies searching media freedom used measurements which only looked at the death rate of journalists in a given country, the number of those in prison, physical abuse, or the measures applied by the government to silence outlets free from government pressure or influence. Studies like these do not have much to say about the financial connections between governments and media owners. Instead, they wanted to account for plurality of the media in percentage terms where the ideal level was adjusted to American and Western Standards. It turned out that the mere percentage comparisons do not tell us much when we talking about a rather small market. As a minimum requirement we can state that the interconnectedness of the pro-government media should be a question posed to local competition authorities. But the financial operation of the system by both Europe and Hungary is a question to be posed to the EU, which should serve as the oversight body for the media.